Investment strategy

Snowbirds and Uncle Sam

Snowbirds need to check in with Uncle Sam

May 20, 2016

Each year, Canadian Snowbirds have an obligation to file a form with the US government, if they have established a “substantial presence” in the US. The filing deadline is June 15 each year, and the current filing refers to the amount of time a person spent in the US in 2015, 2014 and 2013.

The reason to file this IRS Form 8840 is to avoid a possible demand from the IRS to file a US tax return. I recommend doing this.

Canadians who visit the US casually do so under a B-2 Visa, which is for “tourism, vacation, and pleasure visitors”. Our ability to visit and spend our money in the US is a privilege, not a right. (Insert Donald Trump joke here.)

For 2015 (and the current June 15, 2016 filing deadline), a Canadian has a “substantial presence” in the US by spending 31 days or more in the US in 2015 and a total of 183 days during 2015, 2014 and 2013, counting all of the days of physical presence in 2015, one-third of the days of presence in 2014 and one-sixth the number of days in 2013.

If you spent more than 121 days each year, then this absolutely applies to you, without even doing the calculation. But for a person spending exactly 121 actual days in the US each year, here’s the math:

• 2015 - 121 days (all count)

• 2014 - 40 days (one-third of 121)

• 2013 - 20 days (one-sixth of 121)

This total is 121 + 40 + 20 = 181, which is less than the 183 limit. Therefore, no “substantial presence”. However, if this example had shown 123 days in 2015, that would have made the total 183, and therefore a “substantial presence” and a filing requirement.

Do count travel days that include a presence in the US. However, don’t count days you were unable to leave due to a medical problem that developed while you were in the US.

So, what do you do if you have a “substantial presence” in the US? You avoid having to file an actual US tax return by filing Form 8840, the “Closer Connection Exception Statement for Aliens,” to show that you have a “closer connection” to Canada than to the US.

This form asks which country issued your passport, the location of family members, car registration, social, religious and political organizations, where you are registered to vote, where you do business and your own opinion about your closer country connection.

If this shows you have a closer connection to Canada, then you’re done. If it shows a closer connection to the US, then get an accountant qualified to prepare US tax returns. (If you are a US citizen, you will have to file the US tax return regardless of any presence in the US.)

Once completed, the form is mailed to the Department of the Treasury, IRS Centre, Austin, TX, 73301-0215.

If you are a Snowbird, then do this calculation for yourself, based on your actual days. If this shows you do have a substantial presence in the US in the current year, then I recommend that you file the form. With the hugely increased surveillance and tracking of border crossings in the last few years, and the increased data sharing between the Border Service and the IRS, I think it is naïve to believe they aren’t aware of all your comings and goings.

Ultimately, the IRS can compel you to file an actual tax return if you have a substantial presence and have not proven your closer connection to Canada. They can also deny you access to the US entirely.

So, unless those are options you can live with, don’t try to fight City Hall, or the IRS.Have a great long weekend!

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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.Please consult legal, tax, insurance and investment experts for advice on your unique situation.

David Christianson, BA, CFP, R.F.P., TEP, CIM is a Certified Financial Planner and senior advisor with Christianson Wealth Advisors, a Vice President with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.

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